FirstEnergy Wants Out of Competitive Power Markets

11/10/2016 | Aaron Larson

FirstEnergy Corp.—one of the nation’s largest investor-owned electric utilities, serving customers in Ohio, Pennsylvania, West Virginia, Maryland, New Jersey, and New York—has made the strategic decision to exit the competitive power business.

“We have made our decision that over the next 12 to 18 months we’re going to exit competitive generation and become a fully regulated company,” said Charles E. Jones, president and CEO of FirstEnergy, during a presentation at the Edison Electric Institute Financial Conference in Phoenix, Ariz., on November 8.

A Bevy of Assets

FirstEnergy has a diverse mix of generating assets in its 13,162-MW Competitive Energy Services (CES) portfolio, including nuclear, coal, natural gas/oil, hydro, wind, and solar (Table 1). The CES segment is comprised of primarily three legal entities: FirstEnergy Solutions (FES), Allegheny Energy Supply, and FirstEnergy Nuclear Operating Co. (FENOC). CES is treated as a standalone business and had $5.4 billion in revenues last year. Its facilities employ about 3,500 workers.

Jones said the company would work with legislators and regulators in its states to determine whether a regulated or regulated-like construct could be developed for any or all of the plants. Concurrently, he said, the company plans to entertain offers for the assets from outside interests. If FirstEnergy is unable to put some or all of the units in a regulated construct or sell them, further deactivations would be considered.

Uncertain Financials

The FES entity, specifically, faces some difficult circumstances, according to Jones. Although the entity is expected to be cash-flow positive for the next two years, certain events, such as the potential for an adverse outcome from a long-term rail transportation dispute, the inability to remarket pollution control bonds that are coming due in the next 18 months, or FES’s inability to get some form of regulatory support, could financially challenge the business. Jones said any unfavorable outcome could force FES to restructure debt or other financial obligations, or seek bankruptcy protection.

Although FirstEnergy will continue making all appropriate investments in its nuclear units, according to Jones, spending on the remaining generation fleet would be more discretionary.

“While we might not continue to own and operate these assets, we want to see them survive for our employees and to ensure they continue serving customers in the region well into the future,” Jones said.

In Regulator’s Hands

Asked what FirstEnergy’s ideal outcome would be, Jones said, “Well, the ideal outcome would be that Pennsylvania and Ohio, January 1, say we’re going to re-regulate all of these plants and put this industry back to a way that really makes sense, I believe, for customers for the long-term.”

However, he went on to say that such an outcome was unlikely. Therefore, he suggested that some units would be sold, some would likely be shut down, and some might ultimately get some financial support.

“We are not taking this action to try to put any pressure on state policymakers,” Jones said. “We are taking this step because we have made the strategic decision that competitive generation is not a fit for us, and we plan to exit it over the next 18 months.”

—Aaron Larson, associate editor (@AaronL_Power, @POWERmagazine)

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